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This report outlines the results of the Final Environmental Assessment (EA) of the Canada-China Foreign Investment Promotion and Protection Agreement (FIPA) negotiations. On September 9th, 2012, Canada’s Minister of International Trade and Minister for the Asia-Pacific Gateway, Ed Fast, and China’s Minister of Commerce, Chen Deming, signed a Foreign Investment Promotion and Protection Agreement (FIPA) between Canada and China (see News Release: PM announces signing of new investment agreement with China). Prime Minister Harper and President Hu Jintao of China presided over the signing ceremony, which followed the announcement of the conclusion of negotiations for the FIPA in February 2012, during the Prime Minister’s visit to China (see News Release: PM announces agreement that will facilitate investment flows between Canada and China).

FIPA negotiations are subject to the 2001 Framework for Conducting Environmental Assessments of Trade Negotiations1. The Framework provides a methodology for conducting an EA of a trade or investment negotiation. It is intentionally flexible so that it can be applied to different types of negotiations (e.g., multilateral, bilateral, regional) while ensuring a systematic and consistent approach to meet two key objectives.

The first objective is to assist Canadian negotiators to integrate environmental considerations into the negotiating process by providing information on the possible environmental impacts of the proposed agreement. As such, negotiators and environmental experts are involved in the EA and work proceeds in tandem to the negotiations.

The second objective is to respond to the environmental concerns expressed by the public. The Framework contains a strong commitment to communications and consultations throughout each EA of a trade or investment negotiation.

The process under the 2001 Framework for Conducting Environmental Assessments of Trade Negotiations focuses on the likely economic effects of the trade and investment negotiations and their likely related environmental impacts in Canada. The process involves three phases—the Initial EA, Draft EA and Final EA. The middle phase, also known as the Draft EA, is not undertaken if the agreement in question is not expected to generate significant economic effects and environmental impacts in Canada. Public consultations are an integral part of the EA and are undertaken throughout the process.

An Initial EA of the Canada-China FIPA was completed in January 20082. The Government of Canada opened the Initial EA for public comments from February 20 to March 21, 2008. No public comments were received. In the light of the Initial EA’s conclusions regarding the unlikelihood of significant environmental impacts in Canada, preparation of a Draft EA was subsequently deemed to be unnecessary. The findings of the Initial EA were communicated to Canada’s lead negotiator and were integrated into Canada’s negotiation strategy. The purpose of the Final EA is to document the outcome of the negotiations in relation to the EA process.

II. Findings of the Final Environmental Assessment for the Canada-China FIPA

While the findings of the Initial EA were valid and accurate at the time of the report’s completion, the results of the Final EA of the Canada-China FIPA negotiations do differ slightly from those found in the Initial EA. In the Initial EA, it was found that significant changes to investment in Canada were not expected to occur as a result of the Canada-China FIPA. In addition, it was found that no significant environmental impacts were expected as a result of the Canada-China FIPA. In this Final EA, the claim that no significant environmental impacts are expected based on the introduction of a Canada-China FIPA are upheld; however, over time, Chinese investors have shown greater interest in investing in Canada, and this trend is likely to continue, if not increase with the introduction of a FIPA. The findings of the Initial EA, along with the more recent developments in Canada’s bilateral investment relations with China were communicated to Canada’s lead negotiator and were made a part of the negotiation strategy.

a. Areas of Growth in Investment

The stock of Canadian FDI in China was valued at approximately C$4.5 billion at the end of 2011. That same year, the stock of foreign direct investment into Canada from China reached approximately C$11 billion. These figures amount to approximately a 24.5% increase in Canadian FDI in China between 2008 and 2011, and approximately a 92.4% increase in Chinese investment in Canada over that same time period. Canadian investors have expressed interest in a broad range of sectors in China, including transportation, biotechnology, education, finance, information technology, manufacturing, and natural resources. As China's economic importance continues to grow, it will remain a priority market for Canada. Sectors of interest for Chinese investors in Canada include natural resources, renewable energy, information and communication technology, food processing, pharmaceuticals and natural medicine, and advanced manufacturing.

b. Estimated Economic Impacts of the Canada-China FIPA

While a FIPA should be a positive factor in investors’ decisions on whether or not to invest, a FIPA does not impose new market access obligations or liberalize existing investment restrictions. Companies and individual investors determine risks through independent economic and political assessments, and determine their willingness to accept those risks and invest in a given market. A FIPA seeks to reduce the risk of investing in a foreign market; however, this type of government-to-government treaty cannot directly facilitate new investments or directly create new opportunities for investment. As such, it is not feasible to establish direct causal link between changes in investment patterns and the presence of a FIPA. Nevertheless, by ensuring greater protection against discriminatory and arbitrary practices, and enhancing predictability of a market’s policy framework, a FIPA allows investors to invest with greater confidence. This increase in investor confidence indirectly encourages increased investment, and potentially attendant benefits such as job creation and broader economic growth.

c. Estimated Environmental Impacts of the Canada-China FIPA

As new flows of investment from China into Canada (or Canada into China) cannot be directly attributed to the presence of a FIPA, there can be no causal relationship found between the implementation of such a treaty and environmental impacts in Canada. It is for this reason that the claim made in the Initial EA, that no significant environmental impacts are expected based on the introduction of a Canada-China FIPA, is upheld. Regardless, as in all Canadian FIPAs, the Canada-China FIPA ensures that the Parties retain the ability to regulate in the public interest, including with respect to environmental issues. Moreover, the FIPA will not inhibit Canada’s ability to develop and implement environmental policies. All foreign investors in Canada are subject to the same laws and regulations as domestic investors, which includes laws aimed at protecting the environment.

III. Environment-Related Provisions in the Canada-China FIPA

No new issues arose during the latter stages of the Canada-China FIPA negotiations with respect to potential environmental impacts in Canada. The environment-related provisions of the Canada-China FIPA are closely reflective of those found in Canada’s FIPA model.

Mirroring Canada’s model, the Canada-China FIPA includes general exceptions with respect to the protection of human, animal or plant life or health, as well as the conservation of exhaustible natural resources. These safeguards, found in Article 33(2), are based on those contained in GATT Article XX and GATS Article XIV.

As per the FIPA model, Article 18 of the Agreement contains a clause whereby the signatories recognize that it is inappropriate to encourage investment by relaxing domestic health, safety of environmental measures. In the event that a Party offers such encouragement, the other Party may request consultations.

Finally, and as is found in the model, Annex B.10 of the Canada-China FIPA provides that regulations designed and applied to advance legitimate public welfare objectives, such as those respecting health, safety and the environment, do not constitute an indirect expropriation.

IV. Corporate Social Responsibility (CSR)

The Government of Canada encourages and expects all Canadian companies working internationally to respect all applicable laws and international CSR standards, to operate transparently and in consultation with host governments and local communities, and to develop and implement CSR best practices. Adherence to internationally-agreed upon voluntary principles and guidelines is a key part of Canada's CSR approach. According to a Canadian Chamber of Commerce (CCC) a report titled Responsible Business Conduct in a Complex World (2012), 71% of Canadian corporate executives say they believe Corporate Social Responsibility (CSR) is “an essential part of doing business” and needs to be recognized and reported.

Initiatives focused on CSR, or "sustainable development", in China are still in the nascent stages of development. The Beijing Chapter of the Canada-China Business Council (CCBC), one of the longer-standing bilateral business organizations active in China, restructured its executive into committees in 2006, forming a sustainable development committee focused on CSR. The committee organized two independent networking and information events, and several joint networking events with other Chambers of Commerce in 2006/07, bringing together interested companies and Non-Governmental Organizations (NGOs).

The Canadian embassy in Beijing has met with the CCBC's Sustainable Development Committee Chairs to discuss future initiatives. Some of the initiatives discussed include: a) an education seminar that helps companies to properly define CSR and understand the benefits of a CSR policy to the company's bottom line in addition to the countries and regions that they operate; b) a workshop bringing together CSR-minded Canadian and Chinese companies to network and discuss sustainable solutions to common problems facing these businesses; c) development of a list of qualified NGOs that can work with companies to implement sustainable projects in line with companies’ CSR plans and strategies; and d) a joint project with other Chambers of Commerce to investigate hot topics in CSR, such as micro-credit or micro-financing.

In addition to initiatives led by government and associations, some individual Canadian companies continue to provide leadership in this area.

V. Canada/China Environmental Cooperation Activities

Canada and China are actively engaged in environmental cooperation activities3. Although not specifically linked to the FIPA, these efforts demonstrate existing mechanisms to work together on issues of common concern.

Canada-China Framework Statement for Cooperation on Environment into the 21st Century: Canada and China signed the “Canada-China Framework Statement for Cooperation on Environment into the 21st Century” in November 1998. The framework reflects a shared interest in enhancing cooperation on environmental and sustainable development issues and provides an umbrella for collaboration on the environment, The Framework Statement created the Canada-China Joint Committee on Environment Cooperation (JCEC) with Environment Canada and the Chinese Ministry of Environmental Protection as the lead agencies. As a forum for cooperation, the JCEC provides an opportunity for high level policy dialogue, an exchange of knowledge on environmental matters, a review of bilateral achievements, as well as a venue to identify potential areas for further cooperation. The JCEC held its inaugural meeting in 2000. The 7th JCEC meeting took place in November 2011, where discussion focused on bilateral cooperation related to environmental emergencies; biodiversity; water; eco-labeling; environmental technologies and mercury emissions.

Memorandum of Understanding on Matters Related to Protected Areas: The signing of this MOU was witnessed by Prime Minister Harper and Premier Wen Jiabao in Beijing, during the Prime Minister’s visit to China in February 2012. The purpose of the MOU is to provide a framework for Parks Canada and China’s State Forestry Administration to collaborate and share their professional and scientific knowledge and experience in the management of national parks, nature reserves and other protected areas. The areas of cooperation may include: the development and implementation of national parks and nature reserves; ecological restoration, public education, tourism and visitors experience; conservation measures for endangered wild fauna and flora species and their habitat, including species reintroduction; development and management of wetland parks, monitoring and management of wetlands of international importance; and, conservation measures for the preservation of forests and wetlands within national parks and nature reserves.

Memorandum of Understanding on Environmental Cooperation: Environment Canada and the Ministry of Environmental Protection renewed the Memorandum of Understanding (MOU) on Environmental Cooperation in October 2010 in Beijing. This is the third renewal since the signing of the first MOU in 1993. The MOU provides a framework for cooperation on regional and global environmental issues and advocates for the building of partnerships and facilitation of dialogue among environmental protection agencies, organizations and enterprises in both countries. Through work plans developed by the Joint Committee on Environmental Cooperation, the MOU is implemented through bilateral cooperative projects and activities on environmental issues of mutual interest

The Canada-China Climate Change Working Group (CCWG): The Canada-China Climate Change Working Group was formed in March 2004, as a follow up to the Canada-China Joint Statement on Climate Change Cooperation. The Working Group co-ordinates and advances the bilateral effort to respond to climate change and is co-led by Environment Canada (EC) and the department of Foreign Affairs and International Trade (DFAIT) on the Canadian side and the National Development and Reform Commission (NDRC) and Ministry of Foreign Affairs (MFA) on the Chinese side. The first CCWG meeting was held in Vancouver in March 2004 and since, there have been five additional CCWG meetings, with venues alternating between China and Canada. These meetings are an opportunity for government officials from Canada and China representing various ministries and departments to hold frank and open discussions on the issues related to climate change while identifying opportunities for future cooperation in priority areas, such as clean technology, renewable energies, sustainable urban development and others depending if the priorities of the time.

MOU on Climate Change Cooperation: Canada and China signed an MOU on climate change cooperation on December 3rd, 2009, during Prime Minister Harper’s trip to China. The purpose of the MOU is to formalize and enhance bilateral policy dialogue and cooperation on mitigation and adaptation issues of mutual interest. The most recent activity under the CCWG was an Adaptation Workshop held in Vancouver, Canada, from March 21-22, 2012. The delegations from both countries included senior officials in addition to technical experts in the area of adaptation. The focus of the exchange included: national strategies; national planning experiences; and sectoral approaches to adaptation.

MOU on Science and Technology Related to Meteorology, Hydrology, Environmental Prediction and Climate Change: The Meteorological Service of Canada (MSC) has had a long lasting and successful relationship with the China Meteorological Administration (CMA) through the MOU for Cooperation in Science and Technology Related to Meteorology, Hydrology, Environmental Predictions and Climate Change, which was first signed in 1986, and most recently renewed in May 2011. The purpose of this MOU is to improve cooperation in science and technology related to the fields of meteorology, hydrology, environmental predictions and climate change undertaken by the CMA and MSC and their co-operators. Under the MOU there have been over 150 projects undertaken, 30 delegations received in Canada, and 50 senior decision-makers hosted in Canada over the 25+ years of engagement. This cooperation has enhanced and maximized capabilities in these areas in both of our countries, and is a good example of how collaboration can lead to mutual benefit.

Environmental Trade Missions to China: The Government of Canada has organized a number of environment themed trade missions to China. In the past, Trade Team Canada Environment (TTCE) missions were organized by Industry Canada, in cooperation with the Canadian Government's Trade Commissioner Service in China. The mandate of these missions was to facilitate the transfer of Canadian environmental technologies and know-how to China, and foster partnerships between environmental industries in both countries. More recent activities between Canada and China in the area of clean tech have focused on government to government meetings, particularly the Working Group on Environmental Protection and Energy Conservation, which brings together leaders in government and academia to find ways to increase cooperation in these sectors.

2007 Science and Technology Cooperation Agreement between Canada and China: On January 15, 2007 in Beijing, the Government of Canada and the Government of China signed a Science and Technology (S&T) Cooperation Agreement that provides support for collaborative research and development activities between the two countries. The Agreement promotes greater collaboration in research and development between Chinese and Canadian academics, and both private and public sector researchers and innovators and harnesses both public and private sector investment in joint S&T initiatives. The work conducted under the Agreement focuses on five priority areas: energy and clean technologies, ICT, life sciences, agriculture, and civil aviation.

China Council for International Cooperation on Environment and Development: In 1992, a major building block in Canada-China cooperation on environment was laid when the Canadian International Development Agency (CIDA) provided assistance for the establishment of the China Council for International Cooperation on Environment and Development (CCICED), a high-profile international advisory body for collaboration and exchange on matters of sustainable development. Canada’s support for the work of the CCICED has been a cornerstone of Canada’s engagement with China on environmental policy issues, and through CIDA, Canada has been CCICED’s lead international partner for the past four phases (1992-2012). As a high-profile international advisory body, chaired by the Chinese Vice Premier and co-chaired by the Chinese Minister of Environmental Protection and the President of CIDA, the CCICED provides world class policy advice to China to help the country deal with its considerable environmental challenges. CCICED has been credited with a number of positive environmental policy changes undertaken by China over the past 20 years, such as the decision to build an Environment and Health Management System (2008) and the policy needs associated with Low Carbon Economy (2009).